Undoing the Minimization of Wages in America

The front page of this morning’s New York Times carried a story highlighting the growing discontent of working-class Americans whose “wages have floundered” over the last few years despite the “record levels” of corporate profits.

Although this discontent may seem somewhat mysterious to many American politicians, who spend their time closely cosseted with affluent lobbyists or attending lavish fund-raisers organized by the wealthy, it hardly shocks me. Most ordinary people don’t like being poor or getting steadily poorer as the years and decades go by.

As it happens, I will be in DC next week, addressing this very topic at an Aspen Institute panel focused on raising the minimum wage. According to most news accounts, leading members of Congress were somewhat surprised when President Obama decided to include mention of the topic in his State of the Union address a couple of weeks ago, proposing an increase to $9.00 per hour. After all, he’d originally been elected on a promise to raise the level to $9.50, and had then spent the next four years focused on the far more urgent need to bail out our Wall Street firms and restore the business confidence of the wealthiest and most parasitical elements of our suffering society. But I suppose that low and late is better than nothing and never.

Meanwhile, my own conservative heresy of proposing a minimum wage increase, and even one considerably higher than the Obama/Krugman/NYT troika, continues to draw considerable shock and outrage from various reasonably prominent economists, some of whom have emphasized that they have been studying the topic since around the time I was born. Although most of them do advocate policies that would reduce current American poverty, their favored proposal is the Earned Income Tax Credit (EITC), which over the last decade or two seems to have become the consensus policy tool among the good-thinking DC Establishment.

Now my historical expertise in this field is rather limited, but I believe the roots of the EITC trace back to the “Negative Income Tax” originally proposed by President Richard Nixon at the urging of free market icon Milton Friedman, and later implemented and expanded under various subsequent Democratic and (especially) Republican presidents. This means of addressing the poverty of low-wage workers involves the government sending them checks, thereby making them somewhat less poor. Free market advocates, always harshly critical of “big government” and the social-welfare system, seem to find these cash subsidies a quite congenial solution.

But let’s give a little thought to who actually benefits from this policy. Haven’t low-wage employers merely followed the classic strategy of using their political influence to privatize their gains while socializing their expenses, retaining the full output-value of their workers but foisting a huge share of the costs unto ordinary taxpayers via the EITC, as well as housing and medical subsidies, school expenses, and social welfare benefits in general, none of which are remotely covered by the net taxes (if any) paid by the working-poor?

The obvious endpoint of this approach would be for businesses to pay their workers nothing, and have all salaries and social benefits covered by the government as an “anti-poverty measure,” a proposal which would surely seem very attractive to employers and their influential lobbyists.

One would imagine that such extreme and corrupt distortions in the most basic free market principles would provoke considerable outrage among all policy experts, left, right, and center. But let us not forget who actually pays the salaries of these individuals.

On a related matter, one point I will strongly emphasize in my Aspen Institute talk is the unappreciated political paradox that a much higher minimum wage may actually be far easier to enact than the paltry $9.00 or $9.50 figure advocated by Obama, Krugman, or the NYT. The reasoning becomes obvious when you lower your gaze from the commanding heights of America’s boardrooms or faculty lounges to the practical realities of our society.

The only direct beneficiaries of a $9.00 minimum wage will be those currently earning in the range $7.25 to $9.00. Such American workers are relatively few in number, and being quite poor, tend to skew overwhelmingly Democratic, when they even vote at all. Meanwhile, the extra dollars being dangled in front of their eyes are hardly enormous, especially when we consider those gains would largely be offset dollar-for-dollar by losses in their EITC payments. A proposal that offers a little extra money to a small fraction of the electorate that already votes Democratic in overwhelming numbers will have a difficult time passing the Republican-controlled House.

By contrast, consider the politics of a minimum wage proposal in the $12.00 range. According to my estimates, a remarkably large fraction of all American workers would benefit, and when we add in their husbands, wives, parents, and children, the total is probably a landslide majority of the entire voting population. Furthermore, the promised gains are huge—many thousands of extra dollars to each worker in most cases. And at such higher current wage levels, the beneficiaries are almost as likely to be Republicans—especially Southern Republican conservatives—as core Democrats. Rush Limbaugh might denounce the idea all he wants, but would his hundred-million-dollar tongue really carry the day against the offer of an extra $10,000 per year, cash-money, to a financially-strapped family of social-conservatives living in Georgia?

Admittedly, the notion of minimum wage advocates simply buying the votes of America’s heartland conservatives with such a hefty offer of annual cash might seem crass and undignified within the refined quarters of Georgetown salons. But as I’ve pointed out in the past, consider the situation from a different perspective. All too many of America’s corrupt political class spends all their years in Congress or elsewhere constantly selling their votes for money, whether via the legal vehicle of campaign contributions or based on the prospects of lucrative future lobbying and speaking fees. So perhaps just this once, we should grant ordinary voters the same right to sell their own votes for an extra two or three dollars per hour worked.

Finally, one under-appreciated aspect of the minimum wage debate is its obvious connection to immigration, which was my own original entrance into the topic and which Bloomberg Businessweek has now briefly mentioned. A bipartisan consensus in Congress seems to be forming in favor of a widespread amnesty for America’s 11 million illegal immigrants, possibly combined with increased visas for the highly-skilled and a guestworker plan for agricultural laborers.

But unless every fundamental economic principle is mistaken, a large increase in the effective supply of Labor will surely reduce its bargaining power against Capital, and working-class living standards will deteriorate even more rapidly than has recently been the case. Furthermore, once today’s undocumented get their documents, many of them may move up the economic ladder, leaving large vacancies among those jobs that are especially low-paid or unpleasant, and this economic vacuum will attract a new wave of illegals, perhaps hoping for similar amnesties at some future point. After all, that is exactly what happened following the 1986 Amnesty, endless promises of enhanced border-control notwithstanding. Economic arrangements that are mutually agreeable to both sides of a transaction are difficult for the government to prevent.

However, a $12.00 minimum wage would completely eliminate many of those lowest-rung jobs drawing illegals while drawing citizens and legal residents to fill the remainder, and my suggestion that a high minimum wage would serve as a powerful prophylactic against future illegal immigration is now beginning to resonate in rightwing quarters, as the prospects for the looming amnesty grow stronger. Just a few days ago, VDare.com, the premier “hard-core” anti-immigration webzine ran an article with the provocative but accurate title “Ron Unz’s Minimum Wage Proposal—Make Illegal Immigration Unprofitable!”, which I’ve heard attracted a rather enthusiastic reaction from many readers.

Obviously no respectable Democrat these days would ever dare advocate an anti-immigrant measure. But could a $12.00 per hour minimum wage be seen as “anti-immigrant” if it would probably draw the strong support of 95% of America’s immigrants? I’d guess that if VDare.com’s Peter Brimelow ran on a $12.00 platform and faced an Obama-Krugman ticket running on $9.00, his Hispanic landslide would be the most lopsided in American history.

Finally, consider that many of the pusillanimous Democrats in Congress currently seem very reluctant to propose anything above a $10.10 figure, even if just as an initial negotiating position. But I suspect that liberal Democrat George Miller would feel very comfortable sponsoring $12.00 minimum wage legislation in the House, if fire-breathing Republican Jeff Sessions would agree to similarly sponsor a $12.00 minimum wage bill in the Senate.

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41 Responses to Undoing the Minimization of Wages in America

The fact that people don’t understand the EITC is just another corporate subsidy is mind-boggling. If your business model is totally reliant on wages subsidized by government, then you should be out of business. If you don’t like raising the minimum wage because it’s against the mystical “free market”, then change the corporate tax code to incentivize wage increases. Whatever rising tide floats your boat.

I’m shocked that someone on this great website can suggest something like this. That a person can suggest that it would be a great idea to raise the minimum wage to $12 an hour, just tells me that he has no clue what it takes to be an entrepreneur and how hard it is for many of us to pay our bills and meet payroll every month. Most business owners are not like Apple or the big banks.

Minimum wage jobs are supposed to be entry level jobs for people with no skills, like young people still living at home or immigrants who does not yet speak English. By raising the minimum wage, you will make sure that these people will never get a job and will never be able to acquire job skills that can lead to higher paid work in the future.

And employer can only pay a worker an amount that allows him to make a profit on that person. This amount can not be legislated and is the reason why all low wage jobs are now created overseas instead of here at home. It would be much better for the country if we had no minimum wage las at all. Then there would be jobs for everyone. And even if many of those jobs would pay very little, the workers would at least get experience and skills that could lead to better opportunities in the future. And they would be less of a drain on the government and the taxpayers.

“Minimum wage jobs are supposed to be entry level jobs for people with no skills, like young people still living at home or immigrants who does not yet speak English. By raising the minimum wage, you will make sure that these people will never get a job and will never be able to acquire job skills that can lead to higher paid work in the future.”

And by not paying those people enough money to where they can afford to rent an apartment and eat, what are you doing?

The minimum wage needs to be livable for someone working full time. End of story. If you can honestly say that you believe someone working a full work week does not deserve a roof over their head and food on the table, you’re advocating for slavery.

You do not determine the wage by what allows you to profit – because if that’s all that determined the wage, you would pay your employees nothing at all. Wages are determined by what people are willing to work for – and if a low skill worker is desperate enough, they will work for next to nothing. You offer nine dollars, some other unskilled worker will take 7, and if you offer 7, some other worker would take 3. (And of course, you will take the lowest bidder, since you’re trying to maximize profit) In a market without scarcity (since literally any able-bodied person can do these jobs) the only floor is the point at which the person can make more money panhandling.

In the absence of a government intervention, unskilled workers are in a race to the bottom to sell their labor as cheaply as possible, (just like any supplier of low-end products would) which means doing whatever they can to make the wage work – working 80 hours a week, not eating, living fifteen people to a house, whatever. We need some kind of moral authority to say no, that if you work an honest week’s work, you deserve a basic, frugal, but still dignified standard of living without having to rely on charity or government assistance.

Good piece Ron. Not sure if this how you came up with your number but if you adjust 1968 minimum wage of $1.60/hr with Social Security Administration’s Average Wage Index, the equivalent minimum wage today would be approx. $12.30/hr.

It is astonishing that so few people make the connection between immigration and wage scale. Its like Cambridge economist Ha-Joon Chang said:
“Wages in rich countries are determined more by immigration control than anything else, including any minimum wage legislation. How is the immigration maximum determined? Not by the ‘free’ labour market, which, if left alone, will end up replacing 80-90 per cent of native workers with cheaper, and often more productive, immigrants. Immigration is largely settled by politics. So, if you have any residual doubt about the massive role that the government plays in the economy’s free market, then pause to reflect that all our wages are, at root, politically determined…”http://books.google.com/books?id=qUqoS7MTwPwC&pg=PA5&dq#v

Given that the banksters and corporation managers who only sit and scheme are cossetted in extreme luxury by trillions in corporate welfare by the government, the idea that everyone else has nothing to complain about being forced into debt and poverty while working harder, is nothing but extreme selfishness and self-entitlement.

Is America and America’s government only about and for a wealthy plutocracy? What is the purpose and function of a nation? Does a meritocracy mean that only the tiny number with sufficient conmnect\ions to financial “merit” are allowed to reap the fruits of a nation made up by all the others, and that their lives are only of value in what they can produce for that elite?

Citibank, that bastion of bailouts and revolving corporate/government high positions door, gave an investment presentation in which it extolled the “plutonomy” as the only worthwhile investment in America – and that the “precariat,” that other majority portion of the America that lives increasingly precariously, as only necessary for providing political and military credibility.

I’m in full agreement with Adrian’s comment, especially that “if you work an honest week’s work, you deserve a basic, frugal, but still dignified standard of living without having to rely on charity or government assistance.” And yes, setting that standard is an appropriate activity for government.

Mr Unz, you make so much sense that you’ve left very little else to say.

“This amount can not be legislated and is the reason why all low wage jobs are now created overseas instead of here at home. It would be much better for the country if we had no minimum wage las at all. Then there would be jobs for everyone. And even if many of those jobs would pay very little, the workers would at least get experience and skills that could lead to better opportunities in the future. And they would be less of a drain on the government and the taxpayers.”

That doesn’t sync up with both the typical life of those who rely on low wage work along with what happens in countries that have such workers. While we complain about ‘China having our work’ few would actually want to work in the conditions that such workers live in. That doesn’t even get into cost of living, which makes a low wage in China work better than a low wage in the US. Such jobs are called ‘dead end jobs’ because they aren’t all that useful to a resume that’s looking for experience that goes beyond serving tables and don’t provide any room to grow within themselves.

(that doesn’t even get into the temporary nature of such work, which leaves employees with regular empty spots in their resume which further hurts them in moving up)

“Minimum wage jobs are supposed to be entry level jobs for people with no skills, like young people still living at home or immigrants who does not yet speak English. ”

The problem is that they aren’t. They are being used by many who need to make a living and can’t afford to seek out better employment or education that will help them get into a career.

Given that the typical other option, going to college, is facing a very nasty bubble in its loan programs and tuition, along with the growing number of individuals who still can’t find a job after doing just that, there’s a new push in the form of “If I can’t get a better job, I might as well live on the job I have now.”

Thus, we can either force the minimum wage to make it livable, provide methods to advance into a better job so that minimum wage work can be used in the way you suggest, or government can suppliment the wages with ETIC and/or welfare (though given how ‘being on the government dole’ is villified, I can’t see how that’s accepted as an option)

A side option: Force the minimum wage, then subsidize small companies so that they can make payroll.

A good businessman should pay what labor is worth. If you can’t afford good nuts and bolts to build your product, do you suggest to the supplier that you should pay less for them, so that you can maximize profits? No? Then don’t do this to your employees who supply you with labor. Paying people less than they deserve is just another form of stealing.

On a related note, moving to a universal health care system more like Israel’s would provide relief to entrepreneurs and the self-employed. In my opinion, the biggest mistake of the ACA was leaving our fossilizing employment-based health care system intact. The kerfuffle with the Catholic church only solidified the notion that employers should not be in charge of your health care coverage or decisions; the fact that less that 50% of Americans get their health care in this way shows the system is broken; and asking employers to pay for health care along with a higher minimum wage is too much. Lastly, a universal health care system means a much healthier class of people working for the lowest wages, which can only increase productivity among laborers and employers alike.

Speaking as a liberal, left leaning Brit who works in for the Benefits Service, I can tell you that everything Ron Unz says agrees with my experience. The majority of people on benefits who I deal with are the working poor who earn so little that the the council pays part or all of their rent.

The problem with conservative politicians both here and in the US seems to be that they want to stop the support of the working poor but refuse to address the reason that they need the support in the first place. If employers paid a decent wage then there would be no reason for a government to spend tax payers money on the poor, and that seems like something that small government supporters should support.

The increase in the minimum wage is popular with the public. I don’t think Obama wants or expects it to happen. He just wants to be able to blame Republicans for blocking it.

The policy prescription handed down by the Oligarchs is to drive down wages by destroying unions and throwing open our borders. Then subsidize starvation wages with welfare. If the working class was represented in Washington, immigration would be reduced and Organized Labor would be given a reprieve.

If your employees are receiving welfare you should put your so called business out of it’s misery. Better wages mean better business, less welfare and more tax revenue.

Haven’t low-wage employers merely followed the classic strategy of using their political influence to privatize their gains while socializing their expenses, retaining the full output-value of their workers but foisting a huge share of the costs unto ordinary taxpayers via the EITC, as well as housing and medical subsidies, school expenses, and social welfare benefits in general, none of which are remotely covered by the net taxes (if any) paid by the working-poor?

The obvious endpoint of this approach would be for businesses to pay their workers nothing, and have all salaries and social benefits covered by the government as an “anti-poverty measure,” a proposal which would surely seem very attractive to employers and their influential lobbyists.

Here’s the thing. “The full output-value of their workers” is very likely below $12. Generally speaking, capitalists are out to make money. So if they have an opportunity to make money, such as hiring an employee for less than their “output-value,” they will do so, and so will every other employer in that industry. In the labor market, wages and benefits will tend to approach “output-value” for this reason, minus predicted future expenses, training costs, regulatory costs etc.

Mr. Unz keeps claiming that everyone making below the proposed minimum wage level will “benefit.” The effect of a minimum-wage hike might potentially lead to raises for some workers who have not effectively advocated for themselves by looking for other work, asking for raises etc., but more often it will lead to employees being fired, because they produce a marginal loss to the employer rather than a profit. It has been tried time and time again, and yet nobody has ever managed to legislate away the laws of supply and demand. About 10 years ago or so Santa Monica passed a “living wage” law. The day after it was passed, every gas station in town laid off all their attendants. After a few months suffering under it, it was repealed by voter initiative.

Furthermore, the “socializing expenses” claim lies on the border between a confused non-sequitor and demagoguery. Mr. Unz does not appear to be suggesting that workers be required to pay for their own housing, medicine, education, welfare etc. benefits, and that businesses be exempt from taxes spent on the same, so his proposed solution has nothing to do with the supposed problem. The “obvious endpoint” is not any more “obvious” than that the income tax will “obviously” lead to total nationalization of the economy. Neither are [all] free-market economists particularly enamored of the earned-income tax credit, it merely is the least economically damaging anti-poverty measure, due to the lack of incentives for unemployment, as well as one that can be administered without overhead expenses.

Mr. Unz claims later on that minimum wage increases will lead to a decrease in illegal immigration. I don’t necessarily see how this would be the case, seeing as it is illegal to knowingly hire an illegal immigrant, and so such an employer wouldn’t have too many compunctions about paying employees below minimum wage (as they do now). But interestingly, he essentially admits by making that claim that minimum wage laws reduce employment, especially among the most economically vulnerable (which illegal immigrants tend to be). In any case immigration restrictionists should note that Mr. Unz achieved national prominence by bankrolling the anti-Prop 187 campaign, so you can safely assume he has little concern for your position.

In conclusion, I’ll simply end with that classic and short argument, which he himself unwittingly applies to President Obama. Why so stingy, Mr. Unz? Why not $24? $48?

The “negative income tax” was promoted by Hayek (and Friedman, I believe) as a redress against unfair taxation on the lower class, not primarily as a wage enhancement or floor.

I am dubious if a higher minimum wage will discourage illegals. In my direct experience, illegals were not paid lower wages than legals (most had a gov’t tax id and paid withholding) – they were just better workers at the jobs they do. They would show up and were loyal, and respond to incentives just like every other worker – if they are treated poorly, they quit. Good workers quickly got raises.

Legal workers, on the other hand, would show up one day, not the next, were screw ups with no work ethic, etc. Most would work the minimum time to qualify for unemployment, then disappear back to wherever they came from.

Note: My experiences working with this group were prior to the “e-verify” system, so I do not know if employers have resorted to cash payments to illegals to circumvent the system.

Unaddressed by Unz above is the raising the minimum will primarily impact businesses that hire lower wage workers, and lots of them, much more than the highly profitable corporations in today’s economy, i.e. financial institutions and high tech. Chase is not paying people $7.75/hour to run portfolios, Google’s campus is not full of minimum wage programmers, either, yet both are sitting on mountains of cash. Local fast food joints are, and are franchises at that, meaning they are operating on low margins already. They will fire workers to lower costs – no doubt about it.

I find this a rather sticky subject, because we have seen unregulated capitalism’s effect on the worker. At the same time, I am very hesitant to advocate for a higher minimum wage as it has, historically, driven unemployment up. Personally, I kind of like the idea of ending the EITC instead, since it would force businesses to get nothing more than the value that they pay. Think about it: If you pay someone minimum wage, such that they have to take a second minimum wage job to make ends meet, how easy do you think it would be to call them in for work at the last minute (this happens a lot at fast food restaurants, btw)? Suddenly, giving your employees a comfortable life has direct availability incentive. And this also frees up government money. Sure, it’s probably naive to expect a tax decrease, but it makes a tax increase at least a little harder to sell.

In the HBO film, “Too Big to Fail”, there is a scene where the head of Merrill Lynch, facing the implosion of his bank, objects to possible federal restrictions on pay & benefits as a part of any bailout. He argues that any restriction would chase away talent. That such talent wrecked the economy seems to escape him.

How is possible that salary inflation at the top is a good thing for “the market” but a higher minimum wage is harmful?

All of the opponents of minimum wage still lack a response to the moral question:

Does someone who works a full work week deserve enough money to meet their basic needs without requiring charity?

The issues of unemployment are an aside – yes, that is a potential negative factor, but it doesn’t change the moral terms. Similarly, ending slavery, if it still existed, would also increase unemployment – but that doesn’t mean that slavery is suddenly okay.

You can create a minimum income tax and raise it all you like – but all that will result in is either people not working, or (if you need to work in order to qualify for the money) lowering the prevailing wage on the backs of taxpayers.

“…I’m shocked that someone on this great website can suggest something like this. That a person can suggest that it would be a great idea to raise the minimum wage to $12 an hour, just tells me that he has no clue what it takes to be an entrepreneur and how hard it is for many of us to pay our bills and meet payroll every month…”

What part of “privatize their gains while socialising their expenses” do you not understand?

If your business model is “depend on the taxpayer to support my workforce”, you shouldn’t be bragging so much about entrepreneurship. You’re a parasite.

Setting aside the roots of the EITC with Hayek and Friedman, what I do remember very clearly is that it was promoted as the conservative alternative to raising the minimum wage in the late 1970′s and 1980′s. In addition, almost every single date listed in eHow.com’s history of the federal EITC, from its enactment to its increases, expansions, simplifications and indexing to inflation, corresponds to a Republican Administration.

Let’s also remember that low-wage workers still pay sales and payroll taxes, the latter often outstripping the income taxes they pay or would pay without the EITC.

Let’s also remember that the economic literature – as opposed to the economists themselves, most of whom have not actually researched the subject – is split on the impact of minimum and living wages on the unemployment rate. It is by no means an open and shut case that an increase in the minimum wage will increase the unemployment rate, since the loss of some jobs may be offset by an increase in other jobs driven by increased spending by workers effected by an increase in the minimum wage.

An increase in the minimum wage is also likely to benefit quite a few workers already being paid just above the new minimum wage since bosses will still want to attract workers worth more than the minimum wage and maintain some kind of a wage step ladder.

Once again I’ll say that Unz’s suggestion here sounds like so many we hear today with so many issues: Clever sounding, but then upon reflection sounding too clever by half, clearly seemingly designed to really get at the nub of the issue, and being of the sort that just never seem to really resolve things. (And indeed create all kinds of other problems that can be far worse than their alleged benefits.)

So let’s start with that basics: What is the cause of low wages?

In the main, easy: Too much of a supply of labor given the demand for labor.

Okay, then what causes this?

Well of course the business cycle produces this situation from time to time as the population of consumers varies in its demand for products and services.

But what’s our problem here?

As Unz himself admits, it’s *not* just some cyclical thing, it’s been a long-term phenomenon for us now. A few decades. Decades in which consumers were roaring for products and services. So it doesn’t seem to be the business cycle at work here.

Okay, so what other big causes can one think of contributing to too much supply of labor given the demand that we see?

Seems to me there’s three: (1) The “off-shoring” of jobs effectively increasing the labor supply; (2) Immigration of low-wage workers allowing in lots of additional supply; and (3) The tremendous deficit of demand for our goods and services overseas compared to our demand for what is made overseas from us.

Thus, while I suspect there’s things that would make the off-shoring of jobs fairer but don’t know the subject well enough to say, it seems that the straightforward and direct way forward would at the very least to crack down on illegal immigration and to crack down on the insanely unfair trade practices that make selling our products overseas so hard compared to the red carpet we roll out for foreign products.

But … then there’s Unz’s Rube Goldberg solution. Avoid the hard, direct solutions, and come up with a scheme that, instead of relying on the time-tested supply/demand understanding, requires buying into a entire string of hypotheses.

And then also ignores the downsides of his prescription. Once again as supply and demand says, if you artificially demand higher wages for employees without increasing the demand for a firm’s products and thereby increasing its ability to pay those higher wages, it will lay off people if not go out of business.

And then there’s the ignoring of the issue of (further) concentrating our economic eggs in ever-bigger firms by (further) decimating small businesses which have a harder time meeting higher wage demands. And also then the fact that such concentration doesn’t only have sociological problems, but that the fewer the economic egg-holders you have the more oligopolic power they have to screw you over with their artificially inflated prices.

And then there’s what strikes me as Unz’s mystifying theory that somehow, solving our problem of attracting immigrants here due to our higher wages is going to not just be ameliorated but indeed solved by … making our wages higher.

Like I say, too clever by half for me, too speculative by orders of magnitude, too laden with certain negative side-effects, too … post-modern politically. Too much the idea that we never really have to confront things directly. There really are no issues that cannot be endlessly elided. There really are no tough things that need to be done. And, above all, always yet another promise of how to get something for nothing.

This was already briefly touched on, but are there really companies out there that currently employ illegal aliens but would comply with a minimum wage? How many illegal aliens are even being paid the *existing* minimum wage?

Explain for us how making a “living wage” apply to a “continental-scale market” would result in the Santa Monica gas station attendants (and others) keeping their jobs. Also explain how whatever objections you can think of to having a minimum wage in a “single city” do not also apply at a larger scale to a “continental-scale market.” I’m fascinated to know, in my ignorance.

TomB says: “So let’s start with that basics: What is the cause of low wages?”

TomB mentions too many laborers, the business cycle, the “off-shoring” of jobs, the immigration of low-wage workers and too little foreign demand for goods and services produced in the U.S. He neglects to mention a number of other reasons, such as the shift of revenue from wages to profits and dividends, and from low-income earners to high-income earners. In other words, the money is still there with which to pay higher wages, but Capital has decided to retain that money rather than share it with its employees. In the proces, they have even violated the supposed law of economics that wages will rise with productivity.

TomB also fails to mention the breaking of unions in the private sector and the parallel campaign to first rein in public sector unions through wage and hiring freezes, privatization and contracting out, and otehr givebacks, and now the outright attempt to break public employees to the same degree that private sector employees have been broken.

He also fails to mention that consumer demand in the business cycle was largely driven by the availability of easy credit, often at usurious rates.

TomB says: “And then [Unz] also ignores the downsides of his prescription. Once again as supply and demand says, if you artificially demand higher wages for employees without increasing the demand for a firm’s products and thereby increasing its ability to pay those higher wages, it will lay off people if not go out of business.”

Because businesses have no other option when the cost of supplies goes up than raising prices. Because neither executive salaries, bonuses nor dividends can be trimmed, and because stock prices must be inflated by the periodic buying back of stock. Nope, I suppose the economic literature is airtight that any increase in wages must, Must, MUST be matched by an equal and offsetting increase in prices; there’s just no other way!

TomB says: “And then there’s the ignoring of the issue of (further) concentrating our economic eggs in ever-bigger firms by (further) decimating small businesses which have a harder time meeting higher wage demands. And also then the fact that such concentration doesn’t only have sociological problems, but that the fewer the economic egg-holders you have the more oligopolic power they have to screw you over with their artificially inflated prices.”

You know, I’ve often complained about libertarians lecturing the rest of us about economic matters, their use of microeconomic theory to address macroeconomic issues, their reliance on abstract examples instead of concrete ones, and their studious dismissal of reality if it conflicts with free market theory. Here, TomB acknowledges the reality of economic concentration but fails to note that said concentration has been occuring over the last 30+ years even as wages have been stagnant or gone down. In other words, low wages have done nothing to prevent the concentration of Capital, so why should we take it on faith that increased wages will have the exact same impact as low wages? Or, why should we trust what the free marketeers tell us about high wages when we have 30 years worth of empirical evidence that monopolies, mergers and acquisitions and the decimation of small businesses has proceeded apace under a low wage regime?

Artemus says: “This was already briefly touched on, but are there really companies out there that currently employ illegal aliens but would comply with a minimum wage? How many illegal aliens are even being paid the *existing* minimum wage?”

My guess is that the meatpacking industry and other domestic industries that have plants or worksites with a lot of workers, some legal and some not, generally comply with minimum wage laws because otherwise it would draw the attention of the state and or federal labor departments, but I’d welcome anyone with real evidence to confirm or contradict this guess.

By saying that I saw this on the Chris Hayes show, I’ve probably revealed enough about myself that I am going to get attacked, but here goes:
Chris had a segment on Obama’s minimum wage proposal. One of his guests was a small businessman. He was one of ten small businessmen with whom Obama met the week before the SOTU. To be fair, they had all voted for Obama. The first thing Obama asked them was what can I do to help you. The first one to speak up (it was not the man who was on the show) said “Raise the minimum wage.” The guy said Obama was truly shocked and went around the table; all but a couple agreed. The guy on the show said that a significant part of his customers were minimum wage earners, and if they could buy more it would help him and other he knew of of a couple of other small businesses in his community that it would help, and it would have a ripple effect.

This reminded me of a comment I read on some website a couple of years ago. Based on other comments by the same commenter, he was definitely not an Obama supporter. He made the observation that big corporations were back to making record profits but small business people like him were still hurting bad. He said that so many of his former customers had lost their jobs and either were couldn’t find a new one or if they had were severely underemployed, and that his revenues had plummeted. He said that he talked to many other small business people in his community, and they were in the same boat. Maybe if his underemployed former customers got a raise to $12/hour they could give him some business.

So don’t be too sure that all small business people would oppose this. It would depend on the mix of minimum wage employees and minimum wage customers they had.

Appreciate your response, but it seems to me that in most of your criticisms you are not realizing you are rejecting the law of supply and demand. For instance in addressing my position that supply of labor determines wages you sum up your criticism by saying that I instead ignore the idea that “Capital has decided to retain that money rather than share it with its employees.” But of course if there is enough demand for labor “Capital” can’t do that, because “Capital” consists of millions of firms, and any firm that does this excessively will see its laborers flee elsewhere to work for a firm that doesn’t.

Supply and demand.

And I think you do the same talking about the breaking of Unions. In other words, you can’t make or break Unions all you want, but at base if there’s not too much supply of labor given the demand for same, the cost of labor (i.e., wages) will go up.

Once again, supply and demand.

Certainly also, firms hit with a mandated higher minimum wage *might* do such things as raise prices or take away money from their higher-paid people, and indeed some of that is done. But, as one can easily understand and as is actually seen the easiest way of coping with the higher cost of labor is … to “buy” less labor.

No different than when the cost of something goes up, demand for same goes down. Or, to put it another way, as the supply for something gets more costly, the demand for same goes down.

Lastly then you state: “why should we trust what the free marketeers tell us about high wages when we have 30 years worth of empirical evidence that monopolies, mergers and acquisitions and the decimation of small businesses has proceeded apace under a low wage regime?”

And the answers are:

A.) Because true free marketeers abhor monopolies and the like because they are the antithesis of the free market, and,

B.) To more closely explain my specific point, you *have* had 30 years worth of low wages now and since the business cycle does not explain that the cause(s) must lie elsewhere.

I understand of course that you are essentially saying it’s “greedy Capital,” but what I’m saying is that even accepting that Capital is indeed greedy (and always was), it is still subject to the law of supply and demand—and that’s only natural because it is that which is being *driven* by that “greed.”

In the main then it is with supply and demand that I believe we have to look for explanations for our chronic low wages, and once again to me the three biggest explanations that I perceive (admittedly somewhat offhand) are the off-shoring of labor, the importing in of new labor in the form of immigration, and grossly unfair trade suppressing overseas demand for our goods and thus for our labor too.

I think TomB is basically right (though I’d add computers/increased automation to the mix of reasons for why capital has the upper hand now). And while I’m terribly concerned about our trade deficit, I don’t think that’s driving wages down, I think that’s a symptom of stagnant wages (wages stagnated, so workers supplemented with loans).

I’d put things in this order:

Cheap overseas labor. Various Asian nations opening up to the market economy drove this, and it was inevitable. It’s not something we can really control, unless we’re up for a full-on tariff war.

Computers/automation. Obviously, technology has improved productivity before (cars/horse & buggy is the oft-cited example). My sense is that not only is it filling that long-known role now, it’s also driving the yawning chasm seperately the low-skill/undereducated worker from the high-skill/educated (credentialed) worker. I have no idea what to do about this. I don’t think there is a policy choice here, other than the continual efforts to improve education in poorly performing districts, and efforts at reducing the cost of higher education.

Cheap immigrant labor. This is where I tend to part company with many of my fellow liberals. I think massive immigration from poor countries = downward pressure on wages at the low end. It’s probably neutral or even beneficial for *me* but it pretty clearly hurts the American citizen making $10/hr. For this reason, I favor better enforcement of our immigration laws (specifically some sort of E-verify check + vigorous prosecution of employers who employ illegal immigrants). But I also support recognition of reality regarding the folks already here (a “path” to citizenship. Last I saw, the proposal was for “back of the line” which was over 10 years wait), and I think a big wall on the border is a boondoggle.

I’m not opposed to raising the minimum wage to $9/hr, since it hasn’t been raised in a while and that’s hardly a crazy figure. But it’s not gonna solve much, IMO.

I know you have a point concerning the role of computers/automation, but I wonder: Given the self-correcting nature of any such big increase in productivity over some reasonably near-term span of time, and given that we’ve now seen low wages persist for such a long time, is that still a big factor?

Theory, that is, notes that of course things like the use of computers and automation in delivering goods and services will decrease the demand for labor for same as they are employed. And of course what they are is productivity increasers, making their “employers” richer. But as their use spreads their “employers” compete ever more and once again via prices, so showing the economic law that increased productivity means lower prices. And as those prices are lower, the money chasing those affected goods and services (i.e., their demand) can chase after other goods and services, increasing the demand for labor to produce same.

Obviously there’s the matter of timing gaps there, and especially with the wide use of computers it would/will take time for all this to work it’s way out.

Maybe, despite our decades-long experience with low wages it hasn’t yet fully and so you’re right, but at least this is self-correcting.

The problem with the flood of labor supply due to off-shoring and immigration however isn’t nearly so self-correcting, not at least until you start running out of the billions of foreign workers willing to work for peanuts who constitute that supply.

Anyway, aside from this and thanking you for your response I’d just second your thinking about supporting at least some modest increase in the minimum wage just because it has been so long since same has been seen. It’s problematic, but what isn’t?

It’a a feedback loop, as others above have described or alluded to. “Local” variations of the loop notwithstanding, it remains a valid and accurate observation.

If this were actually a local issue, we wouldn’t need a federal intervention of any kind. Those small business owners would go to the companies with low-wage jobs and pressure them to keep up. The local feeback loop would be very easy to demonstrate, along with actual benefits to the companies being pressured, like employee retention.

But the reality is very different. Companies’ first obligation is to their investors/owners pockets, and as someone smarter than I once observed employee wages is a cost of doing business, not a moral imperative.

I would ask the “room”, then, if there is any effective (let alone more effective) answer to that than a labor union? The only one I can think of is legislation, strictly enforced.

By “grossly unfair trade suppressing overseas demand for our goods” I meant all the innumerable ways and means and tactics that other countries use to hinder our selling of our goods in their country. (So as to protect their own producers and labor forces, of course, which in the process harms ours.)

And then of course, given I talked of “trade,” I mean the relative lack of us doing anything to protect ourselves from this, such as instituting tariffs or sur-charges or sur-taxes on stuff from foreign countries that are being unfair to us and etc.

I find it almost impossible to overstate this, so maybe one example will do: Everyone knows that China manipulates its very *currency* so as to artificially favor its own producers and laborers. And that’s huge enough, right? Especially given the U.S. has done crap about it.

Well, you know what other little trick the Chinese have caught onto? Telling American producers (and of course employers of American laborers) that no, if they don’t move their production facilities *to* China, they are going to find all kinds of impediments to ever seeing *in* China, and this subtly done blackmail is just open and obvious and hardly even denied by the victims. (Because access to the Chinese market is so huge.)

Indeed, Reagan’s brilliant, brave trade negotiator Clyde Prestowitz says that its outright known that both GE and Intel have moved not only some of their production facilities but some R&D facilities too over to China because of this.

And Prestowitz further says that when it comes to this kind of thing the U.S. isn’t even playing in the same sort of game that China and Japan and South Korea and God-knows all of who else is playing at: We are playing at being free-marketeers. *They* are nothing but mercantilists, pure and simple, who of *course* think the job of their government is to try to help their businesses compete against foreign firms.

It’s huge, it’s been going on now for a long long time ever since the so-called “Free Traders” were able to drop the term “Fair Trade” from their slogan, and both of our political parties have been utterly bought off on this. Not to mention subjecting American laborers to unfettered “free” competition with Third World laborers.

All these comments, and no one mentions the word “inflation” even once?

First, TomB is mostly correct; the wage problems for workers in this country reflect the realities of supply and demand in the labor market. Employers with greater choice in automation and offshoring have already found plenty of ways to minimize domestic labor use.

Second, budget pressure on large portions of the American public holds down many prices. So directly, a minimum wage increase would not do much, given the small number of workers we’re talking about. But indirectly, it’s a different story. Those who make somewhat higher than minimum wage, but not much more, would see smaller wages in comparison, and would want a raise, as well. Unz pointed out that the number of employees who make between minimum wage and $12 an hour is high enough to possibly sell the higher minimum wage democratically; that’s enough to create upward pressure on price when they get paid more, too.

The social justice element of the minimum wage is not the point. Businesses that can pay markedly higher wages likely already have some degree of market power which allows them to make more money – large corporations foremost – and it’s the small businesses that would take a hit. Big business can pass along the added labor cost to the consumer. One would have to hope for a massive economic stimulus from this to override the immediate inflationary effect, particularly in the case of the ghastly $12 an hour wage. Any loosening of consumer pockets from the extra money would get restricted again by these price increases.

I happen to agree that employers should pay their employees well if they are productive, and that employed people should be able to have a decent, although frugal, quality of life. But the American people clearly don’t see it this way, because they have been shown to not care in the slightest if their products are made by sweatshop labor. We love that the free market seems to give us low prices most of the time, but evidently, we don’t care about the methods used. How many more Foxconns need to throw suicide nets around their buildings to get people to pay attention to labor conditions or possibly start buying local? How many more points of fairness must we abdicate to the central bureaucracy, instead of handling it like an actual society and taking on some responsibility for how we spend our money?

The earned income tax credit is a graduated wage subsidy paid by the government not the employer. It’s size is a decreasing function of the worker’s hourly market wage as determined by the laws of supply and demand in an open market for labor. If you don’t work you get nothing. A minimum wage, by contrast, makes the employer pay the difference, which artificially depresses the demand for labor that would otherwise exist. It is a clumsy, ham-fisted approach to the problem. Better to artifically restrict the supply of labor with new statutory limitations on the length of the workweek with severer penalties for time worked over that limit. Employers should be made to pay double the standard wage rate not just increase it by half.

The objective is to get the maximum number of people into the workforce where they can earn a decent standard of living without sacrificing all their time

Ok, TomB, so you’re talking about pushing policy in a more “protectionist” direction, to combat the protectionist policies of other nations.

I’ve been edging my way in that direction for years now, but it still worries me. A lot. I’d be cautious about it, were I in charge. My biggest worry is that you’re exactly right, but we’re so far down the road that even doing things perfectly will result in massive disruption and all that entails.

Thing is, I’m not in charge, and those who are share a broad “free trade” concensus. Oh, sure, there’s still a wing of the Dems who will mumble about protecting American industry, but they never win (heck, up until a few years ago, I’d have joined in shouting them down). And the GOP seems like even more of a lost cause.

If trade policy is the key, there’s a long slog ahead politically, I think.

@ Ray,
Where did you get your theory of “output value”? The American worker’s productivity gains have outstripped wage gains for decades. We are massively underpaid and this is directly the result of the immoral stacking of the legal deck by corporate pirates and their congressional accomplices. Free market rhetoric is nothing more than propaganda for the law of the jungle and a way of camoflageing the fact that what is happening is the strong (economically) exploiting the weak.

Well of course America is guilty of a few “grossly unfair trade” practices, Mighty. (With that protecting our sugar growers clearly qualifying for instance.)

But degree counts, and I’d suggest the degree of relative criminality here between the U.S. and damn near all its biggest competitors—especially the Asians—is akin to the difference in degree between a fart and a hurricane. And maybe a butterfly fart at that if you’ll pardon the crudity.

All I can do again is suggest you read Clyde Prestowitz’s columns in the Foreign Affairs blog where, column after column, while not shying at all from bashing America’s trade sins, just serially reveals how, for decades now, especially our Asian foreign competitors have rigged their game from top to bottom, from side to side, from Alpha to Omega, and encompassing every niche and cranny of same with unfair trade practices.

Again, is there anything more damning in terms of demonstrating deep, sustaining, regime and system-wide manipulation than a country rigging its own *currency* so as to screw foreign producers and laborers? And then there’s that new trick China’s been using of threatening to obstruct access to its markets unless producers actually move their facilities to China. Including even precious R&D facilities with all their know-how.

And then there’s the manipulation by countries that use a VAT tax, which damn well means all of Europe.

Here’s a link to what I think is a particularly good article by Prestowitz, who is not at all a hyperbolic guy if you’ve ever seen him. (Was Reagan’s trade rep, who, upon going out of office, *didn’t* immediately sell himself out to this or that foriegn country’s lobby and instead almost surely killed himself economically by going into an institute thinking about *America’s* economic health.)

And given Prestowitz’s low-key nature you start to get an idea of the degree of economic aggression being perpetrated upon us by foreign countries by his sentiment that the time is way passed for us to merely try to get China and Japan and South Korea and Taiwan to “play by the rules” of free trade. Per Prestowitz, they aren’t even playing by the same *game* as we do, so compelling him to say we should even forget anymore trying to “get tough” with them—because that’s only the game they’ve been playing with us for so long now and understand and play better than us. And so this uber-free-trader is so mad he says the only thing to do now is to just forget our free-trading for awhile and concentrate on “getting even,” period. (With China and the Asians at least.)

*That’s* how bad it is, and has been for a long time. And yet another measure of how bad it is that it likewise fits with that age-old measure that where you want to see the worst corruptions in our politics look not to where our parties are fighting, but look to where they are silent and *agree,* because as far as I can see the “fair trader” species has gone extinct.

Or look at its close cousin which is off-shoring jobs without the U.S. doing a thing to interfere with making our blue-and-brown collar and clerical people—having to exist within our costs of living—compete with the Third-World billions. Not a mention in sight of putting even the mildest tariffs or surtaxes or etc. on the goods and services they produce and send back over here. Not a mention so far as I can see. And not a mention about doing anything to it other than waiting until the living standards of our blue-and-brown and clerical collar people are brought down to that of the Third World.

We have hollowed ourselves out job-wise. The greatest manufacturing country the world has ever seen has allowed multi-national companies to steal the birthright that our middle-middle-and-lower classes laboriously built for themselves and us over a century.

In line with what Clyde says then, wanna see wages rise in the U.S.? Don’t even try anymore to get the others to play by our rules because aren’t even believers in the same game as us. Instead our only hope now is to get even, period.

With apologies for going on again but in support of my contention of the ferocity with which unfair trade is being practiced against us and some measure of the wealth we have lost due to same I can’t help citing some facts that I just ran across that just smack you on the forehead. (If not make you faint due to their magnitude.)

Not being directed at any trade questions at all but in a piece in the Foreign Policy blog talking about Lee Kuan Yew’s view that of course China intends to become a superpower, authors Graham Allison and Robert Blackwill note the following:

“In a nation of 1.3 billion, China has raised more than 600 million people out of conditions of abject poverty and created a rapidly expanding middle class already larger than the entire population of the United States. On its current trajectory, for the first time in history, millions of individuals will experience a one-hundred-fold increase in their standard of living in a single lifetime. In Europe, that took one thousand years. After three decades of double-digit growth, an economy that was smaller than Spain’s in 1980 now ranks second in the world and will become number one in the next decade.”

Now consider: No matter how powerfully a free market can create wealth obviously *no* country’s free market *alone* could come even close to doing this in three decades. Maybe not in 100 decades. And that applies a hundred-fold to a country starting as grindingly poor as China was just those three decades ago: Its *gross* wealth including ever nickel’s worth held by all its people together just simply did not amount to enough to produce the consumer demand to drive anywhere near that kind of wealth production.

In the overwhelming main, three decades ago the Chinese population owned nothing and produced nothing but rice.

So how in the world did China get to where Allison and Blackwill describe it? It couldn’t *start* by using its own consumption: It was too poor to buy *anything.* And so, as any trip to any Wal-Mart will tell you, it did it by essentially substituting a goodly proportion of its 1.3 billion, grindingly poor population for the workers of the rest of the world, including millions upon millions of U.S. workers especially because, being the world’s great consumer, that is where the jobs were.

Or, in other words, in just the last three decades China recapitulated in spades and on steroids what Japan had pioneered before to a far narrower and smaller and slower degree, and what and Taiwan and South Korea have copied.

And in thinking about the *trillions* of dollars of wealth transfer this China business alone has to have meant, you can even put aside any idea “unfair trade” in the game as the U.S. defines it. That is, put aside the impediments that China put on us selling our good to their people.

Why? Because—illustrating exactly what Prestowitz meant—the United States stupidly doesn’t even *consider* it unfair for one country to hijack another country’s labor output by offering up its poor workers to work for less. And thus we don’t even *consider* putting any tariffs or surcharges or etc. on same.

It’s just simply … dirt-poor, just off-the-farm Shanghai workers versus blue-collar South Carolina textile workers having to pay the cost of living in the U.S. … and may the man able to work for the least win.

(As if our politicians, lawyers, doctors or etc. would put up with that view of “fairness” about their jobs.)

Read it again then: 600 *million* in China alone made into a middle class larger than America’s. In *three* decades. And it was entirely facilitated by a blind “free trade” idea utterly divorced from the idea of fairness, so that once one competitor in the U.S. moved its labor force to China, because of its ability to lower its costs the others faced the choice of either doing the same, or going out of business.

And that is why, to cite just one tiny example, there’s not one T.V. set made in the entire U.S. anymore. Not a one.

And then we wonder … how come our blue-collar wages have stagnated so?

Turning American labor into beggars is nothing to be proud about, regardless of industry, and those willing to do so for profit seeking companies shows an abhorrent lack of vision, and capable management expertise.

Qualities required to manage foreign or illegal slaves while receiving government subsidies tests nothing but lack of compassion, and lack of loyalty to America – game of winning by selfish greed?